Bankruptcy and Retirement Accounts

One of the central goals of bankruptcy proceedings is formulating a plan for paying off your debts. This often means liquidating some of your assets, which can include actions like selling some of your property or other assets, garnishing wages, and so forth. The exact mechanisms vary from case to case, but there are assets that can almost always be protected.

People who have retirement accounts will probably be relieved to learn that money set aside for retirement is exempt. Even if your wages are garnished, the contents of your 401(k) and/or IRA accounts stay safe. One possible motivation for protecting retirement accounts from liquidation are that these accounts, if anything, are a sign of financial responsibility. Even if excessive debts have led to bankruptcy, money deferred into retirement accounts is usually taken directly from paychecks.

In the past, not all IRAs were protected from creditors. In most cases, however, this has since changed. 401(k) accounts, on the other hand, have always been protected from creditors. Since 401(k) accounts often involve contributions by both employee and employers – sometimes with the employer even matching the employee’s contribution-there are protections in place in the event of employer bankruptcy.

Sometimes this safety can be compromised if the account holder decides to invest some or all of the retirement money. In the famous Enron case, employees were encouraged to invest their 401(k) money in company stock. When Enron’s stock price plummeted, all the money employees had invested in stock was gone. For this reason, if you decide to invest the money in your retirement, it is important not to put all your eggs in one basket: diversifying these investments is almost always a good idea.

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For more information on the possible effects of bankruptcy on your savings and retirement, consult an experienced South Florida bankruptcy lawyer. The Boca Raton bankruptcy lawyers of Eric N. Klein & Associates, PA can help you. Contact us today at 561-353-2800 to learn how we can help you.